Some large health insurers are starting to offer limited-benefit plans (often called mini-meds) for an unexpectedly vibrant niche — the working poor.

John Carroll

Contributing Editor

Back in the early '90s, Tim Cook was a lonely pioneer in the field of limited-benefit health plans. An early advocate of "mini-med" plans that started out with a capped offering that cost an hour's minimum wage a week, Cook well remembers the initial skepticism that often greeted his pitch.

"One of the major fast food restaurants said that 'we would rather offer our employees nothing than a little, rinky-dink program like this,'" recalls Cook, who credits his late boss Charles Shoumaker, a former human resource manager for the convenience store chain Circle K, with inventing the limited-benefit plan in the late '80s.

But times — and attitudes — have changed dramatically.

Band-aid or benefit?

Over the last few years, Cook — now the president of the UICI subsidiary Star HRG — has seen a host of start-ups barreling into the business. This year some of the biggest players in health care have shed their long-term indifference to the market niche and started to angle for a piece of it.

Last January, Aetna entered the limited-benefit arena with the completion of its buyout of SRC, a company that traditionally had been Cook's biggest competitor in the mini-med arena. And UnitedHealth is rolling out a 50-state offering — with Cigna and Humana taking the lead in some regions — that lays out a series of limited offerings that start with a bare bones network access discount card for $7 a month.

"There are a handful of companies that have done this," says Steve Peterson, an 11-year veteran and chief operating officer of a business called SRC, an Aetna company. "But historically none of the large health care companies have been involved in this product. Now all of the large health care companies have seen that there is a strong interest from plan sponsors."

History

When Cook started out 15 years ago, the mini-med plan was limited to the most basic format: a few dollars a week bought a policy that covered about a thousand dollars' worth of care. Working with employees on the polar opposite end of the executive suite, the plans were laid out to the bluest of blue collar employees: cooks, low-wage independent contractors, cleaning ladies, and the like — the working poor who don't get the kind of comprehensive medical coverage that is available to union workers and the white-collar class. Even today, that hourly cost structure still provides the base price for their most basic plan, with typical limited-benefit plans costing from $50 to $100 a month.

The business rationale behind mini-meds was just as basic as the coverage: Something is better than nothing. In the case of entry-level plans, something translated into a limited number of trips to the doctor, a monthly allowance for pharmaceuticals, and short-term inpatient and outpatient hospital care. Anything beyond that simple package was the responsibility of the individual.

Limited-benefit plans are a natural magnet for the scorn of consumer advocates, many of whom have lambasted the mini-med trend for leaving workers vulnerable to the multitude of medical catastrophes that threaten us all from day to day.

In a Business Week commentary, science editor Arlene Weintraub called one of the new plans "nothing more than a band-aid for a rapidly hemorrhaging health-care wound." Others are quick to join in the attack, saying mini-meds are unlikely to lead to any significant reduction in the number of uninsured.

But the proponents counter that the consumer chorus just doesn't get what drives this business, and what will inspire a new groundswell of adoption in the last half of this decade.

Rising insurance costs are pushing most traditional plans even further beyond the reach of Americans on the bottom rung of the economic ladder. Medicaid programs have been tightening requirements and cutting off some low-income residents from benefits. And a steadily growing number of workers who can't continue to afford rising premiums are landing in the mini-med boat — even as employers are feeling heat to do something to reduce the number of uninsured in the country. (See "Tracking Workers Without Insurance.")

"I think it's going to be a huge industry; all the major carriers are starting to get into it," says Jonathan Edelheit of United Group Programs, a company that administers mini-meds. "When we started three years ago, everybody said, 'You need to make your money while you can because these plans will be regulated out.' And it's not the case. Even now you'll hear that, but this segment of employees and industries will never have traditional benefits."

The people putting together new offerings say that limited-benefit plans are often the only way low-income workers can gain access to discounted services and effective care when they need it most. And the companies they work for aren't going to sign them up now — especially if you consider how fast their existing health care costs are rising.

"If you can't afford high-end medical, it's the only option," says Edelheit. "And more employers are canceling major medical. If they have the option to go bare or put in mini-med, they're going to go the route of mini-meds. These plans will continue to gain ground. Nuances are growing; hybrids are being created. A year from now we'll see plans that aren't just mini-med, but mini-major-med, and you'll see that evolution."

The wild West

In any form, it's not a quick sale. Edelheit and others say that this group of workers takes a lot of handholding under the best of circumstances. One-on-one sessions are needed to carefully explain the limits of the plans. At best, only about 20 percent of the employees offered a mini-med plan take it.

"It really varies, but you'll see somewhere between 6 percent and 20 percent of the total population take the program," says Peterson. Young men often just aren't interested, says Edelheit. And large numbers of low-wage workers have a spouse who has access to better insurance, or a second job that offers coverage.

Employers, though, have lost much of the reticence that used to greet Cook.

"Employers are looking for any way that they can to offer benefits," says Peterson. "The turnover rate among employers can range 100 percent to 300 percent a year; any tool that helps is beneficial to their business."

This is also a field ripe for misunderstandings.

"There has been some confusion among consumers," says Merrill Matthews, the director of the Council for Affordable Health Insurance. "Sometimes people think they're getting the full policy when there might be limits. Hospital rooms are sometimes covered up to, say, $600 a day, so when a person gets a $900-a-day bill, they may think it covers [the entire cost] and it doesn't. Some states are looking at this as a problem," he adds, but as long as agents are up front about the restrictions, he adds, it's more a question of consumer education.

But not everyone in the business is being up front about the limits, says Edelheit.

"There are a lot of smoke-and-mirror plans," he asserts. . "They look comprehensive, but you find that the plan is designed to prey upon the unsophisticated employee. It's like the Wild West out there."

"We are sold primarily through brokers," says Cook, "so we're spread-sheeted against other plans. Some plans that pay enormous commissions can't be of value because of what they pay in commissions. That gives it a black eye."

But industry advocates say the limited plans fit well into the current push to have consumers make more decisions.

"A limited benefit forces people to be a little more cost conscious," adds Matthews, "and provides employers an alternative to get a less expensive plan. With comprehensive plan costs rising, people are looking for alternatives. What you want in a system is a lot of choice with a lot of competition going on. It forces mainline insurers to keep prices down. Five to 10 years ago, the Uniteds of the world would have been very critical — now they want to compete on the limited-benefit side of things."

In UnitedHealth's case, the big insurer opted to compete for the National Health Access plan, a program set up by the HR Policy Group — executives at Fortune 500 companies like General Electric, McDonald's, and Sears — which wanted to find a way to offer some low-cost coverage to their legions of uninsured workers with no other access to a company-subsidized health plan (see "Efforts to Cover the Uninsured.")

The plans start with just a network access card — a discount card — and work their way through four other limited offerings that are capped by a high-deductible insurance plan covering major medical costs.

"Right now, it's still making its way through the internal decision-making process at companies," says Marisa Milton, assistant general counsel and director of government relations for the HR Policy Association. United also is working through the approval process in all 50 states. But once it is up and running, she says, a 10 percent sign-on rate would be great.

National Access also gives people a chance to buy insurance at a pooled rate so they can avoid being excluded or hit with astronomical rates for pre-existing conditions.

That may not be the perfect solution, but when it comes to health insurance for low-income workers, employers are acutely aware that they're not living in an ideal world.

Tracking workers who lack insurance

If limited-benefit plans are aimed at the working poor, they have reason to be encouraged by a new study showing that a significant slice of workers say they can't afford what's being offered to them.

A new study by the state of Pennsylvania says that 900,000 residents — 8 percent — have no coverage. Most (70 percent) say that cost is the overwhelming obstacle. And almost half of the working adults who don't have health insurance told researchers they can't afford the out-of-pocket expenses required by their employers. Sixty-two percent of uninsured people are service workers.

The study results put Pennsylvania far ahead of other states, though. A new study by the Robert Wood Johnson Foundation concluded that in Texas, 30.7 percent of the population lack coverage and that about 16 percent of all working adults in the country — 20 million — are uninsured. Families USA asserted that one of the big problems in Texas is that small companies are unlikely to offer workers any coverage.

But there is growing disagreement over how to track the uninsured. One recent set of figures from the Actuarial Research Corp. estimated that 1 in 5 of the estimated 45 million uninsured Americans actually had coverage.